Out of the ordinary: capital gain/loss from the sale of a foreign currency-denominated debt instrument.

From: The Tax Adviser | Date: July 1, 2007| Author: | Copyright information

Foreign currency gain or loss realized by a holder on foreign currency-denominated debt generally is thought to be ordinary in character. However, when a holder disposes of such an instrument, the entire gain or loss realized on the transaction is not necessarily related to exchange-rate fluctuation. Sec. 988 and its regulations acknowledge this principle by providing that the foreign currency element of a transaction must be computed and taken into account separately from gain or loss on the underlying transaction. Taxpayers and practitioners need to remember that both ordinary ...

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